If you’re in the market for a house and think a fixer-upper can save you some cash, think again. You may end up spending more after renovations than you would have spent had you gone ahead and purchased a move-in ready home in the first place, according to new research.
The top reason homebuyers buy fixer-uppers is because they think they can save money on the purchase price, according to a survey of 1,069 homeowners by home renovation platform Porch. Among the respondents, 63% of millennials, 61% of Gen Xers and 59% of baby boomers felt that way.
But while a fixer-upper may have a lower purchase price than a comparable turnkey house — a property that needs no major improvements before you move in — the money you’ll have to spend to fix the house up often exceeds expectations.
On average, the survey respondents who bought turnkey houses said they spent $250,496, while those who purchased fixer-uppers bought their homes for $199,819. After fixer-upper homeowners paid for renovations, those who stayed within budget spent on average $246,891 in total.
However, 44% of fixer-upper homeowners went over budget, spending on average 38% more than expected, the survey found. Among those who spent over budget, the average total cost of buying and renovating the home came to $275,741 — approximately $25,000 more than the average cost of a turnkey house.
Some renovation projects tend to be more unfriendly to the budget than others. Homebuyers who needed to install a new HVAC system (54%), do major plumbing work (52%) or make basement renovations (52%) were most likely to spend more than they planned
Not surprisingly, fixer-upper homeowners who overspent were more likely to regret their purchase than those who stayed within budget on renovations. Not surprisingly, 86% of those who spent what they expected to spend and 73% of those who spent less than they expected said they would make the same purchase again. However, only 60% of homeowners who spent more on renovations than they planned said they would buy the same house. Some survey respondents also said they would get more accurate assessments of the cost of repairs if they were to buy a fixer-upper again.
Before you buy a house, think through all financial considerations, including whether you have to spend money and time making renovations. If you do want to buy a fixer-upper, look into home renovation loans, which may wrap the cost of repairs into the overall mortgage loan. Also, consider getting estimates from multiple contractors so you will more likely have an accurate assessment of how much repairs will ultimately cost.